Morningstar: Tencent Holdings (00700) and Alibaba-W (09988) are the preferred Chinese AI chip stocks for long-term AI investments, are highly valued or overvalued

The Zhitong Finance App learned that Morningstar released a research report saying that Chinese chip makers are currently benefiting from the increase in artificial intelligence (AI) capital expenditure, but in the long run, Internet companies are expected to become the ultimate beneficiaries. The agency listed Tencent Holdings (00700) and Alibaba-W (09988) as the first choice for long-term AI investment, believing that the two companies' existing businesses can provide profit support. Even if AI adoption or commercialization progress falls short of expectations, the business conditions are still resilient, and AI will also help the development of the Internet, advertising and gaming businesses.

Morningstar pointed out that the adoption rate of AI models in China continues to increase due to speed and cost competitiveness, but the profit prospects of AI companies are still facing challenges. The already listed Smart Spectrum (02513) and MiniMax-W (00100) both recorded strong year-on-year revenue growth in the first half of this year.

Despite strong demand for AI chips, Morningstar believes that Chinese AI chip makers may be overvalued. The stock prices of companies such as SMIC (00981), Huahong (01347), and Changxin Technology (688825.SH) are still expensive compared to their predicted fair value, and high capital expenses also put pressure on free cash flow. In terms of supply and demand, Morningstar currently predicts that China's AI chip supply will continue to fall short of demand until 2028, and there may be an oversupply until 2029.